A Clearer view of the SPX

This chart shows the S&P index weighted by the dollar index ( DXY ). As you can see, it gives us a much clearer picture, and allows us to find better support and resistance levels. Why is that so? One explanation is that it shows us the S&P as viewed from the eyes of the average foreign investor, or from large investment groups which have to take into account exchange rates when making investment choices.

The picture shows that even though we are currently making new highs on the nominal S&P index and hitting a long-term resistance, the true long-term ceiling is at about 40 weighted points away, so we could see a continuation of last Friday's rally next week. Moreover, we just broke an upward channel in a very bullish manner, so we could be transitioning to a new, higher channel.

However, both the MACD and the relative volatility index ( RSI ) are quite high, so we could see a retracement to the higher channel resistance (at about fib level 2011 on the weighted index, about 40 points lower). If the higher channel resistance is broken, we could see a further fall to the second fib level, 100 weighted points lower at from the current level.

Also, earnings season is here, and the results will very likely be disappointing, driving the index down.

If you plan to trade the S&P E-Mini in the medium-term (days, weeks), you could do the following:

1) Buy a bullish move on Monday, put a stop loss at the higher channel (2022) and sell at the long-term resistance (2089).

OR

2) Buy a bounce from the higher channel and sell at the long-term resistance.

OR

3) Sell a break on the higher channel with target at the lower channel (1949).